Hindware Home Innovation Limited (HINDWAREAP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Somany Home Innovation Limited Q3 FY 2022 Earnings Conference Call hosted by Monarch Networth Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vineet Gala from Monarch Networth Capital. Thank you, and over to you, sir.

Thanks, Irene. Good afternoon, everyone. On behalf of Monarch Networth Capital, I would like to welcome you all on the Q3 FY '22 earnings call of Somany Home Innovation Limited. From the management side, we have with us Mr. Rakesh Kaul, whole time director and CEO of SHIL; Mr. Rajesh Pajnoo, CEO of the Pipes business; Mr. Sudhanshu Pokhriyal, CEO of the Bath business; Mr. Sandeep Sikka, the group CFO; and Mr. Naveen Malik, the CFO of SHIL. I now hand over the call to Gavin from CDR India. Over to you, Gavin.

Thank you, Vineet, and thank you for introducing the team. Just before we start, I'd like to mention that some of the statements made in today's discussion may be forward-looking in nature. The actual results may vary as they are dependent on several external factors as well and a statement to this effect has been included in the results presentation that has been shared with you earlier. We will start the call with opening remarks from the management, following which we will have an interactive Q&A session. I now invite Mr. Naveen Malik to open the call. Over to you, Naveen.

Thanks, Gavin. Good afternoon, ladies and gentlemen, and welcome to Somany Home Innovation Limited quarter 3 and 9 months FY '22 earnings call. I am joined today by Mr. Rakesh Kaul, whole time director and CEO of Somany Home Innovation Limited; Mr. Sudhanshu Pokhriyal, CEO, Bath business; Mr. Rajesh Pajnoo, CEO, Pipes Business; and Mr. Sandeep Sikka, group CFO. Before we begin, I would like to mention that some statements made in today's discussion may be forward-looking in nature. The actual outcomes may vary as they are dependent on several external factors as well. The partners may make their own assessment before taking any decision. I will be taking you all through the financial performance of the company, followed by which the respective business heads will take you through their respective businesses. Before moving on, I would like to mention that for the purpose of a fair comparison, the figures discussed on the conference call for Q3 FY '21 and 9 months FY '21 have been adjusted to exclude the contribution from the water heater business, which was sold in a slump sale to Hintastica Private Limited; currently, a 50-50 joint venture between Somani Home Innovation Limited and French multinational, Groupe Atlantic. Now coming to numbers. During the quarter, we delivered a healthy growth of 26% year-on-year in the consolidated revenue. And EBITDA for the quarter was around INR 62 crores, registering a growth of 6% year-on-year. Profit after tax for Q3 FY '22 is around INR 36 crores, representing a growth of 7% year-on-year after adjusting the earliest period tax refund of INR 4.3 crores in the corresponding period of previous year. For 9 months FY '22, consolidated revenue was recorded at INR 1,608 crores, registering a growth of 48% year-on-year. EBITDA for the period was INR 137 crores, registering a growth of 57%. Moving on to the segmental performance. The Building Products division delivered a robust performance during the quarter. It recorded a revenue of INR 496 crores, registering a growth of 32% year-on-year. EBIT for the quarter was INR 46 crores, growing by 37% year-on-year, and EBIT margin for the quarter was 9.3% as compared to 9% for quarter 3 FY '21. These figures include a policy contribution from the plastic pipes and fitting business. Sales for the Pipes business stood at INR 156 crores, registering a growth of 33% year-on-year. The consumer appliances business witnessed a growth of 7% year-on-year, coming in at INR 131 crores despite muted demand. EBIT for the segment was INR 4 crores, registering a degrowth of 72% year-on-year. This was a result of the inflated input cost as well as demand slowdown because of the Omicron variant. The business was impacted during the quarter, but we believe that the impact on the profitability is transient in nature, and our focus to further improve the efficiency of our operations will help us drive growth in the coming quarters. The retail business revenue grew by 23% year-on-year to INR 22 crores. EBIT [indiscernible] INR 2 crores, having grown up by 80% year-on-year and was yet another profitable quarter for this business. As a company, we continue to register growth and maintain profitability. We hope to drive business performance backed by our strong brand Hindware, with fresh and innovative product launches and our robust retail and distribution network. With that, I would like to call Mr. Rakesh Kaul to take you all through the consumer appliances business and the retail business. Over to you, Rakesh.

Thank you, Naveen. Good afternoon, everyone. And thank you for taking the time to join on today's call. I hope you're all keeping well during this pandemic. As far as the SHIL stand-alone performance is concerned, the consumer appliances reported a muted growth of 7% this quarter year-on-year. This is after registering a CAGR growth of 31% over the last 4.5 years. And this muted growth was because of the higher base in Q3 FY '21, which also enjoyed the benefit of huge pent-up demand post the COVID getting over, the first wave. Q3 FY '22, especially in the later half, saw a huge tapering in demand immediately after Deepawali due to the Omicron scare, and also it adversely impacted the consumer sentiment. Besides, e-commerce, which was the instrument of growth in this business, also was under a huge downslide because of consumer reluctance to buy during the later half of Q3. But on the back of our strong brand, Hindware, we're able to register a growth despite all these challenges regarding a revenue of around INR 131 crores. The profitability of the segment, as Naveen reported, was impacted and was with an EBIT of INR 4 crores, owing to the inflated raw material costs and other input costs, which included very high ocean freight, which included a lot of changes in the input costs as well. This has been the trend in the industry for the past few quarters, but in Q3 FY '22, the impact on EBIT was much more pronounced. We expect input costs to remain high at least for the next 1.5 quarters, post which they should stabilize. During the quarter, despite the slowdown, we launched 19 new products and remained committed to developing innovative products for our consumers. And the new launches are an attestation of the same. We have also appointed a fairly huge number of distributors, totaling up to 93 distributors across the country to capture a growing demand. And this is mainly on account of a stupendous growth of our business in fans, which grew by 88%. We have been also focusing on growing our kitchen appliances business, which is not only the biggest contributor to the consumer appliances business, but also enjoys a significant market share in the kitchen hoods and hobs segment. We launched 16 new exclusive kitchen galleries across the country, taking the total number of kitchen galleries to 140. This is to provide a great consumer touch point accessible to our consumers where they can go through the entire range of Hindware kitchen appliances. During this quarter, the possibility of a third wave and the consequent lockdowns and the scare of the Omicron variant dampened the consumer sentiment further. The slowdown already was visible post Deepawali and hence concurrently high costs kept profitability under pressure. We are seeing a revival in trade sentiment for some of our categories and I expect it to further improve with inventory offtake as the Omicron scare abates and the COVID cases in the country decrease. As far as the retail and D2C business is concerned, the revenue grew by 23% year-on-year to INR 22 crores. EBIT was recorded at INR 2 crores, which was registering an 80% growth year-on-year and margins stood at 8.4%, up from 5.6% in Q3 FY '21. So this is a significant milestone in the sense we continue to grow profitably in this business from previous quarters as well. We launched around 200 new products during this quarter, expanding our product portfolio to cover a wide range of price points. Additionally, in line with our strategy for the business. We also added 10 new franchisee partners in the quarter, taking the total to 30. So we continue to adopt an asset-light approach to grow this retail business by focusing more on the franchisee business and the e-commerce business. And with that, I would like to conclude my remarks and hand over the call to Mr. Sudhanshu Pokhriyal. Over to you, Sudhanshu.

Thank you, Rakesh. Good afternoon, everyone, and a very warm welcome to all of you. Q3 FY '22 was a healthy quarter for the Building Product division. We witnessed a robust growth in both revenue and profitability. There has been a steady increase in demand supported by consumer taking home improvement projects, combining with the increasing real estate demand on the back of low interest rates, government incentives, and increasing sales. I'm happy to report that during the quarter, we witnessed an increase in market share for both our sanitaryware and faucets businesses. Our leadership in product design, brand salience, wide portfolio, and robust distribution have enabled us to deliver industry leading performance for many quarters now. Owing to these factors, we have delivered a healthy growth in revenue and profitability. We've been investing in strengthening our retail and distribution network at a pan-India level to further penetrate the Tier 1 and Tier 2 markets and to reach out to Tier 3 and Tier 5 markets. Even the institutional business has contributed significantly to the growth here in the quarter. We also have launched another range of product called Aspiro, which is both sanitaryware and faucet range, which has been well received and is expected to grow further in the coming quarters. The consolidation of our brand teams has also led to a positive impact on our margins, and we plan to continue this strategy going forward to reap its benefits. To conclude, I would like to reiterate that this quarter has been a positive one for the Building Products division, and we aspire to continue on this healthy growth journey, increasing our market share and creating products aligned to the need of the consumer. I would now like to hand over the call to Mr. Rajesh Pajnoo to take you all through the plastic pipes and fittings business. Over to you, Rajesh.

Yes. Thank you, Sudhanshu. Once again, welcome everyone to this quarter 3 and YTD earnings call. Our plastic pipes and fittings business has grown by 33% year-on-year with a revenue of INR 156 crores for the quarter and also 55% at YTD 9 months and continues to positively contribute to the company's bottom line. In what has been a difficult environment for this space, our business has grown in revenue, volumes and market share on the back of the wide acceptance of our brand and the quality of our products. Despite increased fluctuations in raw material prices, we have been able to grow the business. CPVC's contribution to the revenue has also increased during the quarter, signaling a favorable mix of product sales, enabling us to enjoy better realization. We constantly work with the plumbing community to create an ecosystem where both parties can help each other growth. It has proven to be an extremely effective strategy to enhance brand awareness. We continue to implement initiatives that help to procreate stronger brands with the [indiscernible] for communities. In terms of the proposed transactions in which Brilloca Ltd will acquire the manufacturing assets from SHIL. The projects that pertain to plastic pipes and fittings business has seen good progress. A pipes plan with expanded capacity is on track and is expected to be commissioned in the first quarter of the next financial year. And also the new overhead water storage tank production facility is going to commence in a month's time in Hyderabad. We are expected to start this [indiscernible] and believe it will be a major step in helping it to [indiscernible] one of the leading plastic pipes and fittings brands in the country. We continue to grow at a good pace, backed by many factors, both internal and external. As the raw material prices stabilize, we are confident of delivering a faster growth rate and better profitability. I believe that concludes the opening remarks, and I would like to ask the moderator to open the floor for question-and-answer session. Thank you.

[Operator Instructions] Our first question is from Dixit Doshi of Whitestone Financial Advisors.

Yes, so my question is regarding the consumer appliances business. If I see, year-on-year the margins have come off very sharply. So is it because of the transfer of the water heater business or essentially the margins have come down? And how do you see the trajectory in margin in consumer appliances business?

Rakesh, I would request for...

Thank you so much for this question. So first of all, I would like to reiterate that the margins from a comparable perspective have not come down as a gross margin percentage because of the water heater business getting transferred. It is primarily because in Somany Home Innovation Limited, we have a high-margin business of kitchen appliances business. So we suffered on account of very, very high ocean freight, which went up to 350% more than the last year quarter 3. And also there was a huge shortage of certain raw materials and electronic components for our IoT-based products and smart products, which further enhanced the price. So I think the margin loss was primarily on account of the input prices, the ocean freight, the transportation, which substantially reduced the margin by almost 4.5% from the preceding quarter and almost 5.5% from the previous year's quarter. Having said that, the buoyancy from an overall perspective, if you could see the competition landscape, majority of the brands, almost 80% to 85% of the brands in this space have suffered huge margin erosions in the last quarter. Even established brands who've been there for 3 to 4 decades as well. Having said that, we believe that the sentiments and the buoyancy for our business, we continue to remain buoyant for our business. And we see that post the end of quarter 4, we see demand being revived considerably. One is on account of a seasonal category of air cooling, which we believe that as the Omicron wave settles down now, we could see a full season coming ahead of us, which was not the case for the last 2 years. So I see margins stabilizing and coming back to the quarter 2 level, somewhere around start of quarter 1 of '22, '23. I hope I was able to answer that.

Secondly, in terms of growth in consumer appliances business, so obviously, when we had a lower base, we were growing at 25%, 30% plus. This quarter, the growth was slightly down, also because of the Omicron. But on a sustainable basis, 2, 3 years down the line, what kind of growth we can expect in consumer appliance?

I think in the past calls also we have given this benchmark that we want to be a substantial business, and in the next 2 to 3 years, we would like this business to be around anywhere between INR 1,000 crores to INR 1,200 crores, that's what we are looking at. So we will continue to target a growth of plus 30% in the coming years as well.

Our next question is from Deepak Poddar of Sapphire Capital.

Sir, first, I wanted to understand, like you had mentioned earlier as well about the price hike. So just wanted to understand what sort of price hike we have already taken? And what sort of price hike would be due?

You're talking about consumer business? Or are you talking about the Building Products business?

Both.

Rakesh, if you can answer on the consumer side, I'll request...

Yes. As far as the consumer appliances business is concerned, over the year we have taken 3 price hikes in Kitchen Appliances business. But unfortunately, in the cooling business and the seasonal business, which got impacted badly by the Delta wave, despite the high input prices, the inventory at the trade was very, very high, and the trade was not amenable to carrying any further stock at a higher price. So there our margins suffered much more because of the devastation of the season, which was because of the COVID too. However, having said that, we have increased our kitchen appliances prices. And we are also intending to increase the seasonal products pricing very soon so as to cover up for the loss of margin in the last quarter.

Okay. And any further price hike planned?

Yes, I think this quarter would see one price hike for sure, quarter 4.

Okay. And can you quantify, like in percentage term, how much would be the price hike. A range may do, yes.

So I think, as I told you, in all the categories we have not been able to, because we are at various stages of growth in our categories. Some of our businesses are as young as 1.5, 2 years old and some of our businesses are at the most 5 to 6 year old. So based on the strength of our businesses, for example, in kitchen appliances, where we are very strong, and we are a #2 player in the kitchen chimney segment, we could afford a higher price increase to the tune of around 8% to 10% this year so far.

What about the building products?

Yes. Sudhanshu??

Yes. So we took systematically 3 price hikes in sanitaryware and 2 price hikes in faucet business. And both combined if you see, it will be to the tune of 20 odd percent in sanitary and 23% in faucets. So 20%, 21%-odd weighted average pricing has gone up during the course of the year.

Okay, 20%. And any further price hike planned or the current price hike covers the input cost increase?

No. No. As of now, there is no price hike in the current quarter. I won't be able to comment on subsequent to that as of now.

So I understood on those price hike point. Now by when do we see then our EBITDA margin normalizing? And even I think post this acquisition, we were talking about 14% to 15% long-term margins. And now I think we are talking about 18% to 19% long-term margin, right?

Yes. So if you see the margin, last 9 months have been very erratic in terms of the input material, let it be the freight cost, let it be the increase in the natural gas prices. So at every stage, we have to see, test the market, do price hike. So when we had given this guidance of incremental margin expansion, it was not linked to the volatility into the input prices. So this is coming from the rationality, which we do on the premium side of the business, the product mix, using the operating leverage, the cost of deleverage, bringing efficiencies into the business. So the incremental margin guidance which we gave around 9 months back was linked to these factors, not the volatility into the market. So market shouldn't get confused on this, because the price hikes are linked to the input price things which are there.

That's right. Right. Yes, that's a fair point. Now assuming that things get settled down and your input cost kind of stabilizes, so that 18%, 19% guidance maybe 4 years down the line still holds, right?

Yes, yes. So we have given a medium- to long-term guidance and we are walking that path. If you see, we have not only given guidance on the margin, we had also given guidance on bringing effectiveness to working capital. So we gave a guidance that we'll try to work around gaining 20% efficiency. So we have done a fair level of work there also. And a few of the numbers will be visible to you as a part of the segmental reporting, which we have reported.

Okay. Understood. And my final question is on gas pricing. Now the summer is also coming up. So in summer, generally, gas prices go down. So any kind of outlook we have on gas pricing, and how do you see it?

Very difficult to judge the gas prices. So if you see the natural gas price, it has almost gone 18%, 19% in last 4 months. And I think it will be a very wild guess, but internally our guidance is that it should slightly mellow down now given the fact that such a spurt has happened. But it will not come back to the same levels as it was somewhere in INR 23, INR 25, but should stabilize in the range of INR 40, INR 45. That's our internal thought, but this is based on the current market conditions and subject to how the market operates.

Okay, stabilize at INR 40, INR 45; currently, it is at INR 45 to INR 50?

Yes, yes. As we operate in different states. In some states higher than INR 50 also.

Our next question is from [indiscernible].

I have a couple of questions. First of all, basically, I would like to understand that typically, what is the seasonality in the business. Because last few years, quarterly performance has been disrupted by COVID wave and in some quarters by some pent up demand. So if you can give some color on typically in a steady state, which quarters are seasonally the strongest and which quarters are seasonally lean, and that [indiscernible] basically consumer appliances and building products.

Sure. I'll give an overarching answer on this. So let's talk first on the Bath products. So generally, based on the historical trends, we have seen that quarter 3 and quarter 4 generally constitute around 55% to 60% of the sales. And the first and the second quarter is 45% to 40% on the Bath products, but that's not the seasonality. On the Pipes side, quarter 2, due to the rainy season, gets slightly seasonal. On the consumer products side, we have a steady state business, which is on the kitchen part, which keeps growing. Water heaters is a winter product, and air cooling becomes the summer product. So that's how we try to balance. So these are the seasonal products which are there into the businesses. Rakesh, if you want to add on to this, anything?

Yes, I think you're right. So primarily, we have the sell-in season. So from a revenue perspective, we have a sell-in season and a sell-out season. So for air cooling, quarter 4 becomes a big sell-in season and quarter 1 becomes a big sell-out season. And similarly, for water heaters, quarter 2 becomes good sell-in season and quarter 3 becomes a good sell-out season. As far as our new categories of fans is concerned, largely most of the quarters behave like kitchen appliances, except the quarter 3, which is a little bit muted in terms of sell-in.

Right, and considering whatever our salience is for each of these products. So would it be fair to say that in the consumer appliances side, like typically, Q3 and Q4 would be the largest quarters seasonally for us in a steady state.

For Somani Home Innovation Limited, the current range round of products, you're right. Q3 and Q4 would be the largest in terms of sell-in opportunity. And Q1 would be big in terms of sell-out opportunity for the fittings business, though that will not reflect in the primary figures to that extent what the Q4 figures would report.

My second question is basically on the consumer appliances side in this quarter. So will it be fair to assume that the biggest hit on the margins is largely due to the Kitchen Appliances segment and other segments have largely done well? Is that fair to assume?

I wouldn't say that's fair to assume, though we really don't divide segment margins. Kitchen has been a larger percentage of our growth margins. Kitchen appliances, primarily the margins would have suffered on account because a good percentage of kitchen appliances still comes through the imported route. So the ocean freight, which has more than 350% more than impacted the margins, but from a contribution perspective, kitchen appliances contributed to almost around 40% to 45% decrease in margins and the balance categories 50% to 55% out of the reduction of margins.

And would you say that in terms of the margins, have we seen the worst in Q3? Or there could be some more impact left even in Q4? Because you said that in Q1, we should get back to Q2 margins. But what is like the outlook looking like for Q4?

While our prima facie doesn't look that it can't get any worse, but it doesn't seem to be improving as of now. And besides, if you see January was more of a demand death in terms of closure of the shops and so many disruptions, lockdowns across the country. So the input prices certainly have not come down. Whether they will go up is a matter something which I cannot really comment upon. But at this point of time, it looks like they might step up [indiscernible]. So this is the price side, but we see demand reviving.

And I have 1 last question. Basically, can you comment on the debt levels as of December '21? I assume that you were at around about INR 75 crores, INR 80 crores of net debt as of September. What would that number be as of December?

The overall loan which is there is [indiscernible], but apart from this, we have higher investments into mutual funds, which is in Brilloca. So Brilloca is today tax free. And as of 31st December had around INR 50 crores in surplus money. And we use bank limits in SHIL, but the consolidated debt is INR 100 crores to INR 102 crores as of 31st December 2021.

[Operator Instructions] Our next question is from Nikhil Gada of Abacus AMC.

Sir, first, just a quick check. I guess you mentioned that this current quarter margins, there was an impact of 4.5% quarter-on-quarter and 5.5% year-over-year due to higher freight cost and consumer appliances. Did I hear it correctly?

Yes. Freight cost was 1 of the components of the decrease in margins.

Understood. Because where it was coming from is that when I look at our stand-alone numbers, the gross margin impact is maybe close to 120-odd bps. And as you rightly, in other expenses, other expense component is quite high. So what you are saying is making sense. But just a question on that front, that the price hike that you mentioned in kitchen appliances especially, which you mentioned to the tune of 8% to 10%, can you split it up in terms of when exactly date-wise we had taken these price hikes?

So we took 1 price hike somewhere in August. The second price hike we could only take on 5th of December actually. So if you see, for the month of December, largely some of our margins came back, but the impact of October and November was very high. As October, we are in the peak of season and majority of our products were coming in higher landed costs, but it was Deepawali, so none of the competition there to actually increase the price during that period. And so the impact of Deepawali carried it on November. So December was the second price hike which we did for the year. But by the time the demand there, the Omicron wave also came. So the actual increase in margin that could have happened in December on account of full demand did not happen. The e-commerce chains also collapsed. The e-commerce, in pursuance of possible new draft rules, rationalized their inventory, cut down on stocks. So we did a much higher sell-out on e-commerce platforms to the tune of 124%, but they got in lesser stocks. So our primary revenue suffered on e-commerce as well. Possibly, I mean, I stick my neck out to say that e-commerce, for the first time, possibly degrew in India, at least in the consumer appliances category for the Q3. So again, coming back to your question, the second price increase happened in first week of December, but the impact of that could not be felt because it was a very challenging month in terms of revenues.

Understood. So in that case, at least sequentially, we can see 4Q to report a better EBIT margin number than 3Q. But I believe kitchen appliances generally tend to have a very higher base in, let's say, 2Q and 3Q, and 4Q, I'm just guessing over here, 4Q, the demand is a bit lower compared to 2Q, 3Q. Am I correct in that aspect?

Yes, absolutely. You're right. So while Q4, you might see kitchen appliances margins increasing, but the mix of products will be such that cooling could be higher or equal to kitchen appliances, unlike the previous quarters. So overall, the margins will not increase from Q3, because the contribution mix of kitchen appliances will actually decrease in Q4. But yes, from a category perspective, we'll see an increase in margins of kitchen appliances.

Understood, sir. And just lastly on consumer appliances, then I can ask on Building Products. I was of the understanding that a large part of our procurement, we had switched to local vendors when COVID 1 happened. And I think you once again mentioned that we still do a lot of import procurement. So could you give a number as to, in the total mix of our consumer business, out of 100, how much would still be imported?

So let's say, if we talk sanitaryware, almost 70% of sanitaryware is coming from SHIL, and you can assume balance 30%, around 10% to 15% coming from imports and balance getting sourced domestically. On the faucet side, we primarily be on the domestic only, because we don't import much other than the premium brand, Neom, of which some faucets are there. So you can assume 5% -- yes, 5% to 10% is imported on the faucet range.

So on a combined level, we would be -- less than 10% of our total cost base would be procured from outside, yes. About 15%, 16% from sanitaryware and less than 5% on faucets.

Yes, sir. I understand that. My question was more from the consumer appliances business where...

I thought you asked a question on Building Products.

No, no, sir. Sir, I was just speaking...

So I'll request Rakesh to maybe address this question, please.

Yes. Sorry, I was not able to comprehend your question completely. Can you just please repeat it for me?

Yes, sir. So post COVID 1, I believe a lot of our procurement was done from a local vendor base because of the said issues, that availability was always a problem. And you mentioned right now in your commentary that still we are doing import procurement, which still remains a bit high, and that is why the freight cost has impacted us. So just wanted to understand as in how much of our procurement in consumer appliances still happens from imports.

So good question actually. So I would like to divide this into categories and businesses because we'll get a great reflection of how we have moved supply chain from overseas to India. For example, our retail business, which has a contributing factor of around 13% to 14% to the overall SHIL stand-alone revenues, we have moved the supply chain from last year, which was at 85% imports to 15% domestic. We have flipped it around and now we are at 86% domestic and 14% imports. So that's virtually changed completely in terms of furniture and retail business. As far as the other businesses are concerned, cooling products and heating, they were largely contract manufactured in India. The kitchen appliances was the only business which had a larger percentage of around 80% to 85% that was imported. So we also did an exclusive contract with 1 of our contract manufacturers somewhere in the month of middle of Q2 and we've built an exclusive manufacturing facility for Hindware only given the kind of quantities and given the kind of share which we have in the category of kitchen hoods and chimneys. So the factory took a little bit of time to stabilize and it was stabilized only by the end of December. And you will see a lot of percentage. I believe that the supply chain for kitchen appliances in next 2 years could almost come down to as low as 15% to 20% from overseas. And balance 80% to 85% will be procured from this exclusive contract manufacturing site. And also some of the other contract manufacturing sites where we have started securing material.

Understood. And just on the Plastic Pipes division. In CPVC, we have seen the market has seen now inflation in CPVC resin prices as well. And a lot of the vendors have increased prices. So just wanted to understand, have we seen an impact on that front? And how are we able to pass this on? And was there any inventory impact as well?

See this business, PVC and CPVC, basically everything is being passed to the consumer, whether it's an upward price trend or a downward price trend. So always, maybe it may take some time, but the prices are being translated to the end user. But what has happened is in the past 2 quarters, the CPVC availability has been an issue worldwide, because there's so many shutdowns and so many other things. So there has been an increase in the price to the extent of 35% in CPVC part, and this has been transported to the consumer. In fact, we have been doing very well. We are the fastest growing PVC and CPVC manufacturing company in the country. And we have grown by almost around 60% YTD 9 months as far as the revenues are concerned. And as far as the volumes are concerned, we have the largest, percentage wise, growth range. We have grown by 53% in volume.

And did we have any negative inventory impact in this quarter?

No, not really. Because CPVC has been -- we have not been able to get the CPVC totally, but of course, the other people have degrown as far as volume is concerned. But they are very small, so there has not been any inventory impact.

Our next question is a follow-up question from Deepak Poddar of Sapphire Capital.

Sir, I just want to understand both on the consumer appliances as well as on the building products. So how do you see your volume growth overall in next year, FY '23? Some flavor.

So generally, we don't give guidance on very near future. So when it came to long-term guidance, I think what we can reinstate here is that we are walking that path. And maybe 1 or 2 quarters, disruption may come to what has come in consumer, but our strategy for the incremental growth is there. And broadly, that guidance still holds. So we are not walking back. That is all based on the current market condition as we are talking. So generally, we don't give next 3 to 4 quarters guidance as such.

No, CAGR over the next 2, 3 years, that will also kind of help to give some...

We had given that -- this guidance was given in May. That in the next 4 years we see Pipe business growing around INR 1,000 crores, consumer business ranging around 200 crores. And we've also given guidance that our bath products such as sanitaryware and faucets, it will outbeat the market by at least minimum 1.25x. So I think if you see the numbers, we are there, you know...

Our next question is from [ Puneet Khanna of DRD Investment. ]

Congratulations for the great numbers. I just want to know a couple of data points. One is, what is the breakup of faucets and sanitary of the Building Products sales? Then the second is, what are the region-wise sales into Tier 1 and Tier 2 markets and the B2B and B2C sales.

Repeat. I didn't get the last one.

I want to know the retail and project channel sales.

Okay. The projection on this thing. So I think if you see quarter 3 on the faucets to sanitaryware, faucets is between 30% to 35% contribution to the sales. And sanitaryware and other products are you know this thing. And overall institutional, we do almost 70% retail business and 30% going through the institutional.

And sir, I missed the section on the Pipes. What are the Pipes numbers?

So Pipes, during the quarter, we did a sale of INR 156 crores as compared to last year of INR 117 crores. So overall, 32% growth. And for the 9 months, we have done INR 400 crores as compared to last year of INR 249 crores, representing 60% growth.

Our next question is from [ Chirag [indiscernible] of Ratnapriya Capital ].

Can you just repeat the pipes numbers that you just shared. So the last year, the same 9-month number, what would that be for pipes?

Nine months number is INR 249 crores.

INR 249 crores, got it. I just also wanted to disaggregate the Pipes a bit versus the sanitaryware a bit. I think last couple of quarters, you have given a guidance of 6.5% to 9% for the Pipes. Does that still remain similar? Or has there been a change in that?

So if you see, Brilloca still buys almost 95%, 96% of products from SHIL, so the manufacturing margins and other things are still part of that business. But if you see on an overall basis, we had around 8% EBIT during the quarter on the Pipes side. And 9 months figure, it's around 7.5%. But you have to see this from a perspective of numerator-denominator also because since there is a substantial price increase which is passed on, so there is a growth in the absolute margins, but the numbers may look different -- percentage is different.

Understood. So if I just take 8% to be pipes this quarter, then sanitaryware probably disaggregates out to be around 10% of it. Is that broadly in the range?

So sanitaryware and other businesses will be around 12.5%.

12.5% EBIT for sanitaryware and 8% EBIT for pipes for this quarter.

Yes.

But the Building Product division reported 9.3% overall.

Sorry?

The Building Products division overall reported 9.3%. Is that correct?

Yes. You have to use that multiplication along with it.

Got it. 12% EBIT for sanitaryware and I would say, around 8% for pipes. Is that right?

And the average would be the number you are talking about. You have to use weighted average, not simple average there.

Our next question is from Vineet Gala of Monarch Networth Capital.

Sir, currently, in our Consumer division, we have a quarterly run rate of around INR 130-odd crores. So translating to an annual run rate of about INR 500 crores, INR 520-odd crores. So given the long-term target we have on this segment, do we intend to add more categories in the future? Or we expect the current set of products would drive the growth? If you could throw some light from a medium to long-term basis.

Rakesh, if can you take this, please?

Yes, sure. So yes, I mean, if you would see, in the past 5 to 6 years we've been in this business, what we are trying to do is, the whole idea is to be among the top 3 or top 5 brands in each of the category where we get into within a span of 5 to 7 years. So as a part of progression of this business to grow into a much sustainable and a bigger business, we do intend to be a multiproduct organization, so to say. But for that, we are very clear that in any category where we are going to enter into is not just because we have created a distribution structure for ourselves for the other categories and we just want to superimpose the new product onto that. We want to enter into any category when we have a clear, clear consumer proposition in terms of differentiation of product vis-a-vis the competition. So we take that route, we do intensive consumer research from time to time. And as such we find that the brand Hindware has a huge affinity on the extension part and the consumers would love to have us extended to the other categories. From time to time, we do take a call. And even as we are talking, we are taking a very close look at a couple of categories, primarily in the kitchen space. Because we believe that we can dominate that space in the next 3 to 4 years. And so we're taking a closer look at some of the new categories in kitchen appliances. But right now, it won't be appropriate for me to talk about those. I hope I answered your queries.

Fair enough. So on the water heater segment, what is the status of the capacity expansion in our JV? And if you could articulate the CapEx plan? How much have you already spent and how much further do we intend to spend?

Sandeep, do you want me to take this?

Yes, yes.

Yes. So from a water heater plant, I think the plant is progressing to its completion and should be commissioned by June '22 and should start full production somewhere in October '22. As I already told you, the Phase 1 will look at reducing some 300,000 water heaters and Phase 2 will take it to 600,000 water heaters. The total CapEx outlay for the project is INR 175 crores as of now. And we have already issued POs worth around INR 66 crores to INR 67 crores to all the partners so far. So the project is on its way to its completion. And we believe that -- the whole idea is to have India's first green water heater plant. And so the state of the water heater plant will be a great one to cater to the latest consumer need and could become an avenue for doing exports to the SAARC countries as well in the future. So we're online for that.

Our next question is from Arpit Maheshwari as an individual investor.

Sir, my question is on the retail business. Although it is a very small part of your business, firstly, how this retail segment is growing in the next 5 to 10 years? And secondly, we have launched 200 products in the retail category. So which category are the products are there? And what will be the margins in these products?

Thanks for that question. So while retail, we did a lot of consolidation of this business, because if you remember earlier, it was part of the erstwhile SHIL Limited, where it was essentially retail and we had our own stores, so to say, company owned, company operated, company managed. So just after the COVID, we did a reorganization and tried to create a very asset-light business out of it, because the brand which we build in that category is called Evok. It has a fair resonance amongst the consumers across the country towards the higher end, because one of the product propositions, which we have is as a solid wood furniture, which is very distinct to our brand and is well known across the country. So we made it an asset-light business driven on 3 pillars. One of the pillars is basically to drive brand and products, which remain 2 of our biggest strengths. And we have extended this product and brand into the franchisee outlets. So in the span of -- you can see, we have 129% growth in the franchisee business in quarter 3 over the last quarter, which has been significant. We have moved the franchisees up to 30 numbers. We hardly had any around when we reorganized our business. It's become an asset-light business with very few manpower cost. The focus is on product development. The focus is on retail, because we drive this business now through franchisee and also the e-tail, which is our own D2C e-commerce website called Evok.in, which almost gets traffic of around 800,000 customers per month. You can translate into almost 10 million a year. As far as the launching of the product is concerned, we want to be a very significant player in the furniture category. So majority of the launches are in the furniture categories, around recliners, around living, around dining as such. And I hope I was able to answer your question. From a perspective of growth, I think we have grown 23% on year-on-year. So we were trying to consolidate this business and make it asset-light so that it can grow profitably, which we have been able to achieve profitable quarters, except the COVID quarter, for the last 5 quarters. And we believe that the further scale up of this business will be done profitably as well.

And sir, as you have said that you have to focus on the franchisee model. So all this will be the contract manufacturing or you can do some part of the self-manufacturing also in the furniture segment?

So as of now, we are completely into contract manufacturing, but I must add out here, since we have some of the exclusive products, so some of our manufacturers are very captive consumer based as such. So captive contract manufacturing. So they exclusively manufacture for us like the solid wood products which I talked to you about. Having said so, as we are scaling up our business, while we will continue to be asset light and continue to focus on contract manufacturing and continue to focus on product development, continue to focus on building technology even in this category, I think that will remain the guidance for at least next 2 years.

And sir, secondly, what will be the future of your Evok showrooms. Does it cater only the furniture products? Or it will cater all your retail portfolio in there?

As of now, Evok is a brand for furniture and home furnishings category. And we believe that it has created a certain resonance amongst the consumers in this category. We will continue to build this brand in this category. And we believe that furniture online and offline and hyperlocal furniture will become a significant part of the overall furniture industry. Our estimation is that in the next 3 years, hyperlocal, the omnichannel will contribute almost 40% to 50% of the business in the industry. And we at Evok are very firmly geared up. Let me tell you that we have started our first hyperlocal operation in Bangalore as of couple of days back, where the consumers can actually go and buy on Evok.in and the delivery will happen through the Bangalore store. So this gives the consumer the chance of feeling the product at the Bangalore store, ordering it online, so a complete omnichannel feeling whereby the delivery will happen at a faster scale. We intend to integrate all our franchisee partners across the country through this omnichannel loop and build the business to a significant scale. And in fact, we are the first furniture marketeers to have initiated this hyperlocal engine as such.

Our last question is from Aditi Kasbekar as an individual investor.

I've got 2 questions. My first question is on the consumer business, excluding the water heater business. You've given us the revenue for Q3 in the footnote. Can you also give the EBIT number excluding water heater?

Segment-wise, we have not disclosed that, so why to answer, to be very frank.

Okay. Then my second question is on the -- so just before I go to the second question, so basically, your segmental consumer business EBIT that you've given, that is now completely excluding the water heater business, right?

Water heater is now since it is a 50-50 JV, the numbers of water heaters are only consolidated at PAT level. So if you see the results, so we have given that our share of 50% gets consolidated at the bottom line as per the accounting standards.

So effectively, the 3.4% EBIT margin is the one which is impacted because of all the reasons that you mentioned, including your cost pressures and so on.

Yes, yes.

And my second question is on your sanitaryware part of the business. What we've increasingly seen is, of course, there is a good amount of traction that's coming from the real estate cycle turning up and so on. But there are 2 parts to my question. First is that along with this increasing demand, there is also lots of new players who are planning to enter in this space. For example, I think Astral announced recently that they would want to get into the sanitaryware space. So one would like to understand what's your take on the competitive landscape as larger players from other building materials category sort of come into this space. That's first part of the question. And I think the second part of the question is what is our capacity utilization currently? Because from the last call that you did sometime mid-January, where we announced that we'll be acquiring SHIL plant. What I remember is that we were pretty much operating at 100% capacity. Then in that case, where is the incremental growth going to come from? Are we planning to increase our vendor base, et cetera? Because generally, the way I understand sanitaryware as a segment, it's very hard to scale up vendors very quickly if you have to scale up sales. So how do we plan to sort of balance between capacity utilization currently and how we will be sort of growing in that particular segment?

Yes. So let me try to answer the second question first. Our sanitaryware utilization was to the tune of 85% to 90% in Q3 and faucet was to the tune of about 65%. Yes, so you're absolutely right. As the demand is increasing, we are working towards increasing our vendor base. We are definitely looking at strategic partnerships in sanitaryware segment. And of course, there is import which is done from China as well, which we discussed which is to the tune of about 15% within the sanitaryware category itself. So we, of course, have an opportunity to increase imports in case we require to take care of the demand situation. However, yes, we are looking at increasing our domestic vendor base for sanitaryware. While for faucet, we believe we are adequately covered in terms of share capacity utilization.

So if I can just add 1 thing there. Is it easy to do that? Like is it that easy to increase the vendor base? Because from the way I understand it, while there is a vendor base, people who can really meet up to the quality standards aren't that many, right?

I mean it is kind of linked to your first question as well. So both sanitaryware and faucet businesses are extremely fragmented if you see the overall nature of the business. So you have these categories where about 50% to 60%, at an overall level, it is organized, and nearly 40% to 50% of the market is in the unorganized sector. So there are many, I would say, unorganized sector players, which are bordering in the area of getting into the organized sector business. So there is a lot of opportunity if you work with the vendor to develop them into a strategic vendor who can then completely convert into maybe an OEM at times or give a large part of their manufacturing to an organized player. So of course, your own techno-commercial team or quality team has to work with the vendor over a period of time to develop into this. I can assure you that we have successfully done this with many vendors in the last 1 to 2 years. And we believe that it is doable, very rightly said by you that it is not an easy task, but yet it's a requirement of the business, which has to be addressed. So we believe that it is doable. We've been doing it. Now coming back to your first question, yes, we have heard the announcement of 2 major players who are not into this category; one, of course, Astral, and there are others as well who are trying to enter into the category right now. But like I said, we believe that these categories are extremely fragmented. We have multiple players, domestic as well as international. In the last, I would say, last 7 to 8 years, we've seen emergence of many international players who have tried to enter the category and, of course, even come to the market in the last 8 to 10 years. So yes, intensity of competition in the category would increase. But there's the sheer opportunity in the category, because only 50% to 60% of the total business in both faucets and sanitaryware is actually in the organized sector. There is a huge opportunity within this, because unorganized market is actually diminishing. And that entire conversion into an organized sector will unleash a huge demand. So there is room for all the players. That's what we believe. And with the increased urbanization, increased income within the new consumer, and of course, the tendency of people staying at home, the culture work from home increasing, the increase in spending on Indian homes, we believe it's not just volume, but also there will be an upgradation which consumers are doing in their homes, especially in their bathrooms. So we don't see any problem in terms of demand. So at an overall level, yes, I believe that entry of more players in the category is only going to increase demand and increase the growth in the category.

And do we really believe that having our own manufacturing is an advantage here? Or do we think that -- because you are also effectively increasingly going to rely on outsourced vendors? So the question is then effectively what is the moat for us against this increasing competition? Or do we think that it's not really needed given that the pie itself is expanding.

See, we have to divide the products into products which are, I would say, basic products and products which are, I would say, a little bit more value addition, more premium products. So how we look at this is that as the capacity utilizations keep on increasing and we have to rely more on outside vendors, we first try to manufacture more advanced level products and more value-added products within our own manufacturing and take more basic products from outside vendors. So it's not just the simple thing that capacity is added and you give the same product outside. So it's a bit of a mixed mapping which is done. And then with that we are able to manage our capacities in a much better way. So we believe that's the route we're going to take as well as we go forward.

As there are no further questions. I would now like to hand the conference over to the management for closing comments.

Yes. Thank you. I'll just like to thank everybody who participated in the call today. Also I think quarter 3 was a bit volatile in terms of the macroeconomic conditions. We feel that some volatility may continue during Q4 because Omicron also came and effectively the lockdowns happened more effectively in the month of January. But we are very bullish on our businesses, each of the businesses. Historically, we had demonstrated that in each business where we are participating, we can create a meaningful and a sizable value for that business. With that assurance, again, thanks, everybody, for being on the call today. And we are always happy to answer any of your questions. If any more, you can refer it to Citigate, who is our partner on this, and we'll be very happy to make a response to the same. Thank you very much. Thanks.

On behalf of Monarch Networth Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.